Method and system for providing, administering, and coordinating a dual-purpose profit  sharing plan

ABSTRACT

A process and system where such process implements a definite predetermined formula to allocate a value of a life insurance contract owned by one or more parties to support a payment mechanism owned by each party where such definite predetermined formula calculates an amount to allocate to the profit-sharing account of a plan participant and an amount to allocate to another party to support a workers&#39; compensation purpose.

CROSS-REFERENCE TO RELATED APPLICATION

This application is a division of U.S. patent application Ser. No.12/787,393 filed on May 25, 2010, which is a division of U.S. patentapplication Ser. No. 10/359,348 filed Feb. 5, 2003 now U.S. Pat. No.7,739,131 issuing on Jun. 15, 2010, which claims the benefit of U.S.Provisional Patent Application Ser. No. 60/404,106 filed Aug. 16, 2002.

FIELD OF THE INVENTION

This invention relates generally to employee benefit plans. Morespecifically, the present invention relates to a system and method forproviding a Dual-Purpose Profit Sharing benefit plan (DPPSP) toemployees.

BACKGROUND OF THE INVENTION

U.S. health care expenditures are projected to increase from $1.3trillion in 2000 to $2.2 trillion in 2008 (a projected 6.8% annualincrease). The Heritage Foundation estimates that growth in health carespending will outpace growth in gross domestic product (GDP) by anaverage of 1.8% annually. From 2000 to 2008, health spending as a shareof GDP is estimated to increase from 14.0% to 16.2%.

Employers are finding that the managed care methods used successfully inthe past are less effective at controlling cost increases today andcreate employee/participant dissatisfaction. Managed care has come underattack as being unfriendly and characterized by increased interferencein the patient-doctor relationship, increased office administration fordoctors and hospitals, and increases in “denied care.” The public isskeptical concerning the industry's stance that managed care improvesquality and outcomes.

Strong market forces are at work in the health care field to both changethis skepticism and improve cost controls. Defined contribution healthcare, like defined contribution retirement plans, are being created togive beneficiaries more control over their health care benefits. Expertsagree that change is dramatically necessary as health care costscontinue to escalate because today's defined benefit environmentestablishes perverse incentives for users of health care. Today, healthcare beneficiaries have an entitlement mindset (and maximizing insuranceusage)—they are not satisfied unless their benefits exceed theirout-of-pocket costs for insurance premiums, deductibles, co-pays, etc.With defined contribution, the hope is that this mindset can shift toone of privilege and custodianship and a measured assessment of costsand benefits.

One mechanism offered by the U.S. Congress and subsequently put into lawin 1996 to support the movement to defined contribution was theestablishment of Medical Savings Accounts (a.k.a. Archer MSAs). ArcherMSAs permit tax-advantaged pre-funding of current and future healthbenefits. Required to be combined with high-deductible insurance plansand available only to small employers and self-employed individuals,these plans offered additional choices and the opportunity to change theperverse incentives the insureds have to increase utilization so thatthey get their monies worth from their low-deductible, first dollarplans.

With Archer MSAs, Congress sought to reduce health care utilization andlower claims costs by providing tax incentives. As a result, Archer MSAsseek to provide improved tax efficiency, and to reduce utilization andlower claim costs. MSAs provide an enhanced tax-advantaged fundingmechanism for accumulating money during an employee's working lifetimeto pay current and future health benefits. Employer contributions to thefund are immediately deductible and accumulate tax-free when utilizedfor eligible medical expenses. MSAs offer health benefit structures thatincrease choice, decrease administrative costs, simplify benefitutilization, offer greater participant control, and provide strongincentives to plan participants to use benefits efficiently (reducingutilization and lowering health care costs).

Although Archer MSAs offer an attractive alternative for small employersof less than 50 employees.

SUMMARY OF THE INVENTION

In view of the shortcomings of the prior art, the present invention is asystem and method for providing a Dual-Purpose Profit Sharing benefitplan (DPPSP) to employees that takes full advantage of Internal RevenueCode and Regulations.

The present invention provides a method and system for making the taxbenefits (tax-advantaged employer contributions, tax free accumulationof investment income, and tax free use of accrued fund balances whenused for Section 213 expense reimbursement—medical care, dental, Part Bpremiums, etc.) associated with Archer MSAs available to all employers(regardless of size).

For purposes of this document, the plan supported by the presentinvention will be called the Navigator Plan™. Unlike Archer MSAs, theNavigator Plan™ may be used for benefit plans that pay more than simplymedical care reimbursement. The Navigator Plan™ may be used for benefitswhich are paid to an employee due to sickness or injury. As examples,but not limited to, wage continuation plans providing payment due tosickness or injury, the permanent loss of a body member, or permanentdisfigurement.

Possible applications of this invention and the Navigator Plan™ would befor retiree health care, prescription drug needs, medical claims underworkers' compensation, pre-funding active employees' health care needs,funding Part B Medicare premiums, pre-funding injury and sicknessbenefits, etc.

According to one aspect of the present invention, the method comprisesoffering the at least one employee a Dual-Purpose Profit Sharing Plan(DPPSP); establishing the DPPSP as a qualified fund in accordance withInternal Revenue Service provisions; receiving contributions to theDPPSP; receiving reimbursements to the DPPSP; establishing at least oneof a health and accident account in accordance with Internal RevenueService Code section 105; establishing the DPPSP and the at least one ofthe health and accident accounts as an ERISA plan; and processingdisbursements from the DPPSP based on the needs of the at least one ofthe health and accident account.

According to another aspect of the present invention, a method forproviding at least one employee with a Dual-Purpose Profit Sharingbenefit plan (DPPSP), comprises establishing the DPPSP as a qualifiedfund in accordance with Internal Revenue Service provisions;establishing the DPPSP and the at least one of the health and accidentaccounts as an ERISA plan; providing retirement benefits and at leastone of accident and health benefits within the DPPSP; determining atleast one of an allocation of employee contributions and an allocationof employer contributions to the DPPSP between the retirement benefitsand the at least one of accident and health benefits based on apredetermined formula; establishing that i) the employer contributionsand ii) the at least one of accident and health benefits are excludedfrom taxation as income, based on at least one federal income taxexclusion rule; and offering the at least one employee the DPPSP.

According to a further aspect of the present invention, an employeebenefit administration system comprises means for processing employeerecords for each of a plurality of employees, and for manipulatingemployee demographic data, personal data, employment data, payroll data,enrollment data, transaction data with employer plan data to account forplan activity over a predetermined time and to maintain compliance withrelevant IRS Tax Code provisions; and means for storing the employeerecords and the manipulated data.

These and other aspects of the invention are set forth below withreference to the drawings and the description of exemplary embodimentsof the invention.

BRIEF DESCRIPTION OF THE DRAWINGS

The invention is best understood from the following detailed descriptionwhen read in connection with the accompanying drawing. It is emphasizedthat, according to common practice, the various features of the drawingare not to scale. On the contrary, the dimensions of the variousfeatures are arbitrarily expanded or reduced for clarity. Included inthe drawing are the following Figures:

FIG. 1 is a flowchart that outlines the requirements to establish thelegal foundation for an exemplary embodiment of the present invention;

FIG. 2 is a flowchart illustrating the overall context of the exemplaryembodiment of the present invention;

FIG. 3 is a flowchart illustrating how the rules of the exemplary methodand system of the present invention are applied;

FIG. 4 is a flowchart illustrating record keeping for the exemplarymethod and system in a non-retirement fund application of the presentinvention;

FIG. 5A is a flowchart illustrating an exemplary accident or healthclaim payment method and system of the present invention;

FIG. 5B is a flowchart that expands upon the exemplary implementation ofFIG. 5A and provides an exemplary plan design that incorporates numerouspayment vehicles (health fund, applicable insurance plans, and flexiblespending accounts (FSA));

FIG. 6 is a flowchart illustrating an exemplary determination method andsystem according to the present invention for assessing whether thereexist living covered individuals to support the existence of applicableaccident or health benefit fund balances and to redirect existingaccident or health fund balances when no living covered individualsexist to support said balances;

FIGS. 7A-C are flowcharts depicting exemplary methods (and system) forcontributing cash to an Accident or Health sub-account and fordisbursing final balances where sub-accounts are no longer justified;and

FIG. 8 is a flowchart illustrating an exemplary method for paying claimsunder a retiree health program according to the present invention.

DETAILED DESCRIPTION

The exemplary descriptions outlined herein may be converted to programcode by those knowledgeable in the art and executed on a computer or anetwork of computers to administer an employer-sponsored benefitsprogram providing retirement, health, and accident benefits. Health andaccident benefits may include, but are not limited to, medical(including medical benefits payable under COBRA or workers'compensation), dental, vision, pharmacy benefits, long-term care, mentalhealth, and life insurance. The health benefits include any item definedas deductible under IRS Section 213 and may be provided either directlyor indirectly (through insurance) by an employer as part of an IRSSection 105 reimbursement plan. For purposes of this invention, healthand accident benefits will also be called incidental or ancillarybenefits as applicable—consistent with Internal Revenue Service usage.Retirement benefits may be provided through the employer-sponsored IRSCode (IRC) Section 401 profit sharing plan. The combined plan willpreferably be established as a Dual Purpose Profit Sharing Plan (DPPSP).Note: When the term “reimbursement plan” is used within thisspecification it includes any direct or indirect plan ofreimbursement—direct includes self-insured employer-provided orunion-provided plans and indirect includes insurance purchased from athird-party (including either a private or a public entity).

To be compliant with IRC §401 and receive benefits of Sections 104, 105,and 106, the Employee Retirement Income Security Act (ERISA) plandocuments must specifically identify the profit sharing plan as servinga “dual purpose” outlining the retirement benefits (profit sharing,employee contributions, any associated employer matching contributions)and the benefits being offered incidental to the retirement benefits(incidental benefits include health, life, and other non-retirementbenefits). The plan documents must express the employer's intent toprovide accident or health benefits in addition to retirement benefits.The plan documents must specifically and separately identify, forfunding each of the respective health, accident, and retirementbenefits, who (employer, employee, or both) are permitted to contributeto fund accounts supporting the benefits provided and whichcontributions are available to provide accident and health benefits. Inorder to realize the benefits of Sections 104, 105 and 106 for thehealth and accident benefits provided, as applicable, the plan must alsoindicate, as appropriate and depending upon objectives sought, that itspurpose is to provide compensation for employee injuries or losses,whether amounts are calculated with or without regard to an employee'swork absence, and if amounts set aside must be used specifically formedical care.

“A profit-sharing plan is a plan established and maintained by anemployer to provide for the participation in his profits by hisemployees or their beneficiaries. The plan must provide a definitepredetermined formula for allocating the contributions made to the planamong the participants and for distributing the funds accumulated underthe plan after a fixed number of years, the attainment of a stated age,or upon the prior occurrence of some event such as layoff, illness,disability, retirement, death, or severance of employment. A formula forallocating the contributions among the participants is definite if, forexample, it provides for an allocation in proportion to the basiccompensation of each participant. A plan (whether or not it contains adefinite predetermined formula for determining the profits to be sharedwith the employees) does not qualify under section 401(a) if thecontributions to the plan are made at such times or in such amounts thatthe plan in operation discriminates in favor of officers, shareholders,persons whose principal duties consist in supervising the work of otheremployees, or highly compensated employees. For the rules with respectto discrimination, see §§1.401-3 and 1.401-4.” According to IRS Reg.§1.401-1(b)(1)(ii) “A profit-sharing plan within the meaning of section401 is primarily a plan of deferred compensation, but the amountsallocated to the account of a participant may be used to provide for himor his family incidental life or accident or health insurance.”

With properly constructed ERISA plan documents, the plan will augment anexisting or new 401 profit sharing plan e.g., 401(k) plans (or to theextent permissible under IRS Code, Regulations, or interpretations—403and 457 plans) with a mechanism for funding health and accident benefits(as defined previously) on a tax advantaged basis. Contributions must bemade to a separately identified health or accident sub-account. Thehealth or accident sub-accounts must be established as an accident andhealth plan. In addition to maintaining separate accounting for healthand accident sub-accounts and retirement sub-accounts, employeecontributions must be maintained and accounted for separately fromemployer contributions. Employers are able to deduct contributions andaccrue interest and capital gains/losses without tax effect to eitheremployer or employee. Employees are able to make after-tax contributionsand accrue interest and capital gains/losses without tax effect toeither employer or employee. Withdrawals from the account are tax-freeto both employer and employee provided they are used for qualifiedreimbursable expenses (Section 213 expenses—as examples, but not limitedto, medical, health, prescription drugs, long-term care premiums).

A properly constructed DPPSP will meet the qualification requirementsunder IRS Section 401(a). Section 401(a) qualification requirementsstate that the trust, among other things, must be established for theexclusive benefit of the sponsoring employer's employees or theirbeneficiaries, meet minimum participation standards (Section 410), meetcertain nondiscrimination standards (e.g., Section 414), meet minimumvesting requirements for accrued benefits (recognize accrued benefits donot include “ancillary benefits” which are defined in IRS Reg.§1.411(a)-7), meet maximum compensation requirements, and meet minimumand maximum contribution limits.

Employer contributions, within the limits established by Section 404, toa 401(a) qualified trust for a DPPSP (retirement or incidental) aredeductible by the employer in the year paid. Any excess contributionsare carried forward to future years and deducted when determined to bewithin applicable 404 limits. Employees are not currently taxed (Section402) on employer contributions made, on employee's behalf, to a 401(a)qualified trust. As a general rule employees are taxed on distributionsfrom a 401(a) trust under Section 72 (Section 402(a))—this component isaddressed below where used for accident or health benefits and employeenever has right to receive cash in lieu of benefits.

Profit sharing plans are meant to be primarily a plan for deferredcompensation, yet are permitted to provide additional “incidentalbenefits.” These incidental benefits can include life, health, andaccident benefits payable on behalf of the employee, their spouse, anddependents. Incidental benefit contributions (whether employer oremployee made) must be separately accounted for and maintained inseparate accounting records (employer and employee), not combined withretirement contributions, and specifically identified to be used onlyfor either accident or health benefits. The provision specifying use ofthe funds for accident or health benefits only is important to insurethat the plan receives the desired Section 104, 105, and/or 106 taxbenefits. Generally, employer monies used for incidental benefits maynot exceed 25% of the aggregate employer plan contributions for theperiod covered (Rev. Rul. 61-164). This 25% limit applies to employees(plan participants) with less than five (5) years of plan participation.Significantly higher limits apply for participants with more than (5)years participation. For employees with more than five (5) yearsparticipation, a significant deferral period is deemed to have occurred(Rev. Rul. 68-24) and any portion of an employer's contributions may beused for incidental benefits (note: only those employer contributionsset aside and maintained specifically for the excluded purpose arereceived and excluded from gross income).

The simplest implementation of this rule is to establish an accident orhealth sub-account only after the employee has participated in the planfor five (5) years. To expand further, for those with less than five (5)years participation, limit the employer contribution to the accident andhealth sub-account to no more than 25% of aggregate employercontributions. By so structuring the plan, the employer can be assuredthat any employer contribution can always be available to pay for thehealth or accident benefits provided (necessary to meet—where beingutilized—the “specifically for medical requirement” of Section 105plans) and that employer contributions used for health or accidentbenefits will not exceed the “incidental benefits” limit (Rev. Rul.61-164) and disqualify the DPPSP under Section 401(a).

In addition to the “incidental benefit” limits, employer contributionsmust fit within Section 415 limitations. In aggregate, combined employerand employee contributions (as of 2002) cannot exceed the lesser of$40,000 or 100% of the employee participant's compensation. As such,employer contributions for accident and health benefits may not exceedthe Section 415 limit less the aggregate of all employee contributions(pretax, post-tax, retirement, accident, and health) and employercontributions not attributable to accident and health benefits. TheDPPSP must meet these limitations to remain qualified under Section401(a).

Discrimination testing must also be completed to ensure compliance withthe discrimination requirements for Section 401 plans.

For defined contribution plans, participants must vest in their accruedbenefits within the vesting requirements for Section 401(a) plans. Sinceancillary benefits (incidental benefits) are not considered accruedbenefits (IRS Reg. §1.411(a)-7), an employer is not required to vestemployees in employer contributions for ancillary benefits. Employeesmust and do vest in any contributions employees make towards incidentalbenefits. Employers can use their discretion in providing a vestingschedule for ancillary benefits (note: vesting applies to benefits notthe sub-account funds supporting such benefits; the employer-providedfunds revert back to reduce future employer contributions if not fullyused to pay vested benefits).

For example, providing vesting of employer ancillary benefitcontributions upon employee retirement can be an effective approach toimplementing a retiree health or prescription drug insurance program.Such a program will likely be received more positively by the employerversus existing defined benefit approaches to retiree health care, asemployers will have readily defined funded programs which will limit theearnings impact under FAS 106, can be clearly understood by employees,and is not subject to the aggravations created from medical inflation ondefined benefit programs.

Using this invention as a retiree health care program is considered anexemplary method of this invention. Additionally, when a DPPSP is usedas a foundation for a retiree health care program, integration of claimsadministration with Medicare is advantageous and leads to increasedefficiency and lower costs. In particular, coordination of benefitsbetween the employer's/union's accident and health plan and Medicarebecomes simpler and more streamlined. Coordination of benefits isimportant as Medicare acts as a secondary payor where coverage isprovided by an alternative plan and with a DPPSP the employer may extendcoverage for benefits under the accident or health sub-accounts beyondage 65 when an employee is Medicare eligible. To accomplish suchimproved claims administration, the employer (or union) may decide toapply with the Centers for Medicare & Medicaid Services to become aHealth Care Prepayment Plan (HCPP). Under a HCPP, the employer (orunion) will administer Part B claims for Medicare and receivereimbursement (on a cost-plus basis) for any Part B claims and itsadministrative expenses. This invention includes (if desired by theemployer/union) the application, development, and supporting claimspayment, administration, government reimbursement, and auditing of suchHCPP.

When employers make contributions for incidental benefits, employees orbeneficiaries must not have the option, at any time or in any way, toreceive cash in lieu of the benefit contribution. Not providing a cashoption insures that the concept of “constructive receipt” does not applyand the plan complies with the requirements of Section 105's, asapplicable, that employer paid amounts are used “specifically formedical care.” Consistent with not providing employees, at any time,with the right to receive employer contributions as cash, any balancesbuilt up from employer contributions and not used by the employee orassociated beneficiaries (spouses, dependents) for incidental benefitsmust revert back to reduce future employer plan contributions forancillary benefits.

Avoiding “constructive receipt” is especially tricky where the employeeis offered the DPPSP accident and health plan in conjunction with aSection 125 plan (where employees have the right to make pretaxcontributions to benefits—medical premium payments, flexible spendingaccount contributions, etc.). It is important that the interactions donot cause any of the employee's salary reductions under the Section 125plan to contribute to the accident and health sub-accounts. As aparticular example where a health flexible spending account (FSA) isoffered in conjunction with a DPPSP accident and health plan and thesame medical care expenses are covered by both, amounts available underthe DPPSP accident and health plan must be exhausted beforereimbursements may be made from the Section 125 health flexible spendingaccount. However, a Section 125 health FSA may reimburse medical careexpense, which is not reimbursable under the DPPSP accident and healthplan. Additionally, the plan document for the DPPSP accident and healthplan may provide that coverage from the DPPSP accident and health planis available only after expenses exceed the dollar amount of the Section125 FSA have been paid. Those medical care expenses may then bereimbursed first from the Section 125 health FSA and then from the DPPSPaccident and health plan when the amount available under the Section 125FSA is exhausted.

Section 401(a) qualified trusts are treated as exempt from taxation(Section 501). Being exempt from taxes, any trust investment income,capital gains, capital losses, and expenses arising from permittedinvestments/transactions do not generate taxable income for the trust.As a reminder, employees are taxed on trust activity when they receivedistributions from a 401(a) trust under Section 72 and, as with trustcontributions, are not taxed on any trust investment income, capitalgains, capital losses, or expenses as they accrue. Next, the situationfor distributions used for accident or health benefits and where theemployee never has right to receive cash in lieu of benefits areaddressed.

As stated, distributions from a 401(a) trust are taxable to an employeeunder Section 72 (Section 402(a)). Section 72 taxation states thereceiver of trust distributions (distributee) shall include in grossincome the amount by which the distribution exceeds the distributee'spremiums or contributions made, i.e., investment in the contract (exceptfor those distributions specifically excluded). Some concepts necessaryto understand for applying this general rule to distributions from anaccident or health sub-account within a DPPSP are: 1) definition of acontract, 2) investment in the contract, and 3) excluded distributions.

By regulation (IRS Reg. §1.72-2(3)(i)), each separate program of theemployer consisting of interrelated contributions and benefits shall beconsidered a single contract. A program may be considered separate forpurposes of Section 72 although it is only a part of a plan thatqualifies under Section 401. IRS Reg. §1.72-2(3)(ii) holds that each ofdefinitely determinable retirement benefits, definitely determinablepre-retirement disability benefits, life insurance, and accident andhealth insurance benefits are examples of separate programs. In order toretain the separate program nature of the accident and health insurancebenefits (may include more than one program of accident or healthbenefits), it is important to maintain separate accounting for accidentor health contributions made by the employer and the employee(accounting for each, employer and employee, separate from the other).

IRS Reg. §§1.72-6, 1.72-7, and 1.72-8 outline an employee's(distributee's) investment in the contract as their contributions (madefrom post-tax dollars) made to the contract e.g., in this case,after-tax employee contributions made to a accident or healthsub-account. Employer contributions are not considered part of thedistributee's basis as the contributions were not taxed to thedistributee at the time of contribution.

In the absence of an applicable Section 72 exclusion or other exclusion,the distributee would be taxed on the funds/benefits received in excessof their investment in the contract. Provided the benefits, as is truein the present case, are received as accident or health benefits and areexcludable from gross income under Section 104, 105, or 106, such aSection 72 exclusion exists.

First, IRS Reg. §1.72-15 states that, generally, Section 72 does notapply to any amount received as an accident or health benefit and thetax treatment of any such amount shall be determined under sections 104and 105. Accordingly, under Section 105(b) and further clarified by IRSReg. §1.105-2, amounts paid to the taxpayer (distributee) to reimbursehim for expenses incurred for medical care (as defined in Section213(e)) of the taxpayer, his spouse, and his dependents (as defined inSection 152) are (the amounts paid) excluded from the taxpayer's grossincome, provided no earlier deduction had been taken by the taxpayer.Section 105(b) applies only to amounts which are paid, directly orindirectly, specifically to reimburse the taxpayer for expenses incurredby him for the prescribed medical care. Thus, Section 105(b) does notapply to amounts which the taxpayer would be entitled to receiveirrespective of whether or not he incurs expenses for medical care (Rev.Ruling 69-141). Note, this is why the employee must never be given theoption of receiving accident and health sub-account balances as cash, inlieu of benefits at any time or in any form. If the employee is nevergiven such a cash option, the distributions are made under a qualifyingSection 105 medical plan, and the amounts accumulated and paid arespecifically to reimburse for prescribed medical care expenses, theSection 72 exclusion applies and allows the employee's gross income toexclude the amount distributed as reimbursement (under Section 105(b)).Note also that the Section 72 exclusion applies regardless of whetherthe amounts are paid directly (through direct reimbursement) orindirectly (from an insurance company or similar entity).

Where medical benefit coverage includes benefits for terminated orretired employees (under COBRA or retirement plan) reimbursement amountsavailable from the accident or health sub-accounts may be decreased byadministrative costs of continuing such coverage.

For non-medical benefits received under an accident or health plan thatare in the form of payments received for injury or sickness andunrelated to the employees absence from work (for example, payments forpermanent loss of a member or function of the body, total disfigurement,etc.), then employer provided payments may be excluded from employee'sgross income under Section 105(c) (IRS Reg. §1.105-3).

As was true earlier, discrimination testing must be completed withSection 105 plans under Section 105(h) to insure plan is notdiscriminatory.

For benefits received due to employee contributions, Section 104applies. Section 104, like Section 105, is specifically listed as anexclusion under Section 72 (IRS Reg. §1.72-15). IRS Reg. §1.104-1(d)states that Section 104(a)(3) excludes from gross income amountsreceived through accident or health insurance for personal injuries orsickness (other than amounts received by an employee, to the extent thatsuch amounts (1) are attributable to contributions of the employer whichwere not includable in the gross income of the employee, or (2) are paidby the employer). If, therefore, an individual purchases a policy foraccident or health insurance out of his own funds, amounts receivedthereunder for personal injuries or sickness are excludable from hisgross income under section 104(a)(3). Section 104(a)(3) also applies toamounts received by an employee for personal injuries or sickness from afund that is maintained exclusively by employee contributions (IRS Reg.§1.104-1(d)). Whether by insurance or through a fund, amounts receivedthrough accident or health insurance for personal injuries or sicknessare not includable in gross income provided, in the case of medicalcare, the amounts received are not in excess of the deductions allowedunder Section 213.

As mentioned above, Section 72 governs the tax effect of distributionsfrom a 401(a) trust. Section 72 is overridden where Sections 104 or 105apply. For amounts received under an accident or health plan and ascompensation for injuries or sickness, Sections 105 and 104 apply,respectively for benefits funded by employer- and byemployee-contributions. Section 105(e), and expanded by IRS Reg.§1.105-5, defines accident or health plans, in general, as anarrangement for the payment of amounts to employees in the event ofpersonal injuries or sickness. A plan may cover one or more employees,and there may be different plans for different employees or classes ofemployees. An accident or health plan may be either insured ornoninsured, and it is not necessary that the plan be in writing or thatthe employee's rights to benefits under the plan be enforceable. If theemployee's rights are not enforceable, however, an amount will be deemedto be received under a plan only if, on the date the employee becamesick or injured, the employee was covered by a plan (or a program,policy, or custom having the effect of a plan) providing for the paymentof amounts to the employee in the event of personal injuries orsickness, and notice or knowledge of such plan was reasonably availableto the employee. It is immaterial who makes payment of the benefitsprovided by the plan. For example, payment may be made by the employer,a welfare fund, a State sickness or disability benefits fund, anassociation of employers or employees, or by an insurance company. Thus,as an example, payments from Medicare where the Medicare premiums arepaid by distributions from an accident or health plan structured to paysuch premiums.

Further, Section 105 states clearly in 105(b) that the amounts may bepaid by the employer either directly or indirectly, i.e., throughinsurance. Section 104 also allows that the benefits received may bepaid from an insurance policy (IRS Reg. §1.104-1(d)). So for bothSection 104 and 105 the exclusion applies where benefits are receivedthrough an insurance policy and would thus override Section 72. Theemployer-paid cost of such insurance coverage, when paid from a Section401(a) trust, is covered under Section 106 as interpreted by IRS Reg.§1.106-1. Section 1.106-1 of the regulations provides, in part, that thegross income of an employee does not include contributions that theemployee's employer makes to an accident or health plan for compensation(through insurance or otherwise) to the employee for personal injuriesor sickness incurred by the employee, the employee's spouse, ordependents, as defined in section 152 of the Code. The employer maycontribute to an accident or health plan either by paying the premium(or a portion of the premium) on a policy of accident or healthinsurance covering one or more of the employer's employees, or bycontributing to a separate trust or fund (including a fund referred toin section 105(e)) that provides accident or health benefits directly orthrough insurance to one or more of the employer's employees. As such,the gross income of an employee (Revenue Ruling 75-539 includes retiredemployees as employees) does not include employer paid premiums.Employer paid premiums could be paid to an insurance company, Medicare,Medicaid, or other insurance providing entity.

In order to use Sections 105 and 106, it is important that the DPPSPaccident and health sub-accounts be deemed an accident or health plan.Given the broad definition that applies to an accident or health planunder IRS Reg. §1.105-5 this can be easily accomplished in a number ofways, for example, by including written (not a requirement)documentation stating the employers intent to provide accident or healthbenefits for an employee's injury or sickness, maintaining a policy ofpaying such benefits when an employee becomes sick or injured, includingterms in union negotiated contracts, producing flyers stating suchintent, having a custom of paying such amounts when an employee becomessick or injured, etc. It is important that an employee be both coveredby the plan, and most importantly, reasonably able to be knowledgeableof the existence of such a plan on the date they become sick or injured.Thus, employee notification is a desirable element of this invention.

Another issue recently clarified by the IRS is whether, under Sections105 and 106, an employee would be permitted to carryover unused benefitamounts from one year to the next and retain the benefits of 105 and 106for employer coverage provided and benefit payments received. While notcritical to the development of a compliant DPPSP, the additional clarityenables an employer to simplify the communication and execution of thehealth plan component of a DPPSP. Under Rev. Ruling 2002-41, the conceptof Healthcare Reimbursement Arrangements (HRAs) was described.Employer-provided coverage and medical care expense reimbursements madeunder the reimbursement arrangement that allows unused amounts to becarried forward (HRAs), are excludable from gross income under Sections106 and 105, respectively. This will permit an employer to establish anaccident and health plan that provides to an employee for a given year aset dollar amount for the purpose of reimbursing specified expenses(Section 213) and carrying over any unused employer-provided credits tothe following year. Such contributions (regardless whether carried overor not) and benefits received are excludable from gross income underSections 106 and 105. A useful application of an HRA (to be included aspart of this invention) is to provide credits, where needed, foremployees with less than five years service and to fund the employee'ssub-accounts after employee gains five years of service, for example,with sufficient employer contributions to cover the credits. Five yearsis deemed to represent a sufficient deferral period and following thisapproach will maintain compliance with the 25% incidental benefits test.

Referring to FIG. 1, a flowchart illustrating the foundation supportingan exemplary embodiment of the invention to receive the desired taxadvantages is shown. As shown in FIG. 1, at Step 100, ERISA plandocuments are created. At Step 105, a Navigator Plan™ is established asa dual purpose profit sharing plan (DPPSP) and the ERISA documentsidentify the plan as such. At Step 110, documents are created that statethat the employer intends to provide, not only retirement benefits, butalso accident or health benefits. At Step 115, the documents specifieswhat contributions (employer and/or employee) are used for accident orhealth benefits. At Step 120, the documents identify a predeterminedformula for allocating the contributions (employer and/or employee)between those used for retirement purposes and those used for accidentor health benefits (paid into appropriate sub-accounts).

The documents identify that the payments to and from the accident andhealth sub-accounts are to be eligible for the relevant income taxexclusions under the relevant code sections (as applicable, 402, 72,104, 105, and 106). At Step 125, the documents identify that employercontributions are eligible for Section 402 income tax exclusion so thatemployees will not be taxed on such employer contributions. At Step 130,as a qualified 401(a) trust, any trust income are exempt from taxationunder Section 501 and documents identify such exemption.

At Step 135, the Accident or Health sub-accounts are established as aSection 105(e) Accident and Health plan. When designated as a Section105 plan, Section 72 does not apply to Accident or Health sub-accountdistributions. At Step 140, if the accident or health benefits seek torealize the gross income exclusion under Section 105(b) for medical careexpenses, the plan documents identify that the accident or healthcontributions is used specifically for medical care (Section 213, orsub-component of, expenses). Similarly, at Step 145, if the accident orhealth benefits seek to realize the gross income exclusion under Section105(c) for payments unrelated to absence from work, the plan documentsidentify that the accident or health contributions must be usedspecifically for such a prescribed purpose (for example, payments forpermanent loss of a member or function of the body, total disfigurement,etc.). At Step 150, it will be clearly set forth that in no event willthe employees or their beneficiaries have the right, at any time, toreceive cash in lieu of benefits. At Step 155, the documents set forththat any employer amounts remaining after there are no more benefitspayable or possible to be paid associated with the applicable employee,their spouse, or their eligible dependents that any remaining amountswill revert to the plan as a reduction to employer contributions. Theforegoing statements provide adequate support for the establishment ofthe accident or health sub-accounts as an Accident and Health Plan (Step135).

Further, at Step 160, the plan documents outline the terms and processby which payments are made from the accident or health sub-accounts.These terms and process include, for example, claim submissionrequirements, documentation required, prerequisites for payment,reimbursable expenses, timing requirements, and priority of paymentsfrom employer and/or employee contributed sub-accounts with theassociated accumulated earnings. These terms and process should clearlylimit payment for those expenses relevant to the applicable exclusionarysection that applies. For example, where Section 105(b) applies, theplan will limit payment to premiums for medical care or other medicalexpenses of the employee, their spouse, or their dependents. Similarlimitations would apply where Section 105(c) or 104 applies. When fundedwith employer contributions, the plan will provide a predeterminednondiscriminatory allocation formula with respect to the sub-account—asan Accident and Health Plan this includes the nondiscriminationrequirements under Section 105(h).

The mode for preparation of these ERISA plan documents is preferablyperformed on a computer with word processing software (Microsoft Word,Corel WordPerfect, or other available software providing for the inputthrough a keyboard of text information, manipulation of suchinformation, formatting for visual presentation, and printing on a paperor video tube medium).

At Step 165, the employees are made knowledgeable of the existence (or,at a minimum, make reasonably available to the employees informationthat shows such existence) of the Accident and Health Plan supported bythe accident or health sub-account(s). Such communication can be madethrough a written notice, voicemail transmission, electronic e-mailtransmission, pamphlets, benefit plan documents, verbally deliveredbenefits meetings, or other communication reasonably expected tocommunicate the existence of such an Accident and Health Plan.

FIG. 2 illustrates an exemplary integration between the retirement andnon-retirement benefits (examples: life, accident, or health benefits)offered by the employer-sponsored benefit plan. Employers includeemployers of any size—a sole proprietorship, a small employer, or alarge multi-national Fortune 500 employer, for example. Whereappropriate, an employer also includes a union-sponsored plan whereemployers' employees are unionized and benefits are provided throughsuch union.

The exemplary methods (and system) of this invention are best deliveredand administered on a computer system, such as PC, server/client, etc.The computer system may comprise any number of commercially availablehardware and software components, such as keyboards, monitors, storagedevices, printers, operating systems, spreadsheet and accountingsoftware. The exemplary system will process (and store on relevantstorage and communication media) each employee record manipulatingemployee demographic data (age, sex, etc.), personal data (name, socialsecurity number, spouse, dependents, location, etc.), employment data(compensation, status—active, disabled, retired, etc., tenure, etc.),payroll data (compensation, deductions, etc.), enrollment data(contribution amounts, benefit selections, investment selections, etc.),transaction data (investment transfer directions, claim requests, etc.),with employer plan data (benefits available, employer contributionparameters, investment options, etc.) to appropriately account for planactivity over time and to maintain compliance with relevant IRS Tax Codeprovisions.

Once the Navigator Plan™ is established as outlined in FIG. 1, ongoingprocess proceeds are illustrated in FIG. 2. At Steps 200 and 205, at theend of each time period (a pay period, for example, but may be monthly,semi-annually, annually, or other appropriate period), the employercontributions (at Step 200) and employee contributions (at Step 205) areprocessed (illustrated in detail in FIG. 3) through a set of rules atStep 215 to allocate the contributions to the appropriate Accident,Health, or Retirement sub-accounts (Accident or Health sub-accounts areconsidered non-retirement sub-accounts in the Flowcharts). There mayexist more than one accident or health sub-account for each of employer-and employee-contributed purposes (e.g., one for medical care, one fordental, one for workers' compensation, one for AD&D, etc.—maintainingseparation of employer and employee contributions and gains).Maintaining separate sub-accounts for benefits provided will maintainthe separate contract nature of each plan. At Step 220, the sub-accountsare used to reimburse designated accident or health benefits as outlinedin the ERISA documents established at Step 110. Any remaining employerfunds in the accident or health sub-accounts of Step 220 revert toreduce future employer contributions at Step 210. Steps 225 and 235designate existing processes used to administer retirement contributionsunder a 401profit-sharing plan (and are not designated as methods ofthis invention).

FIG. 3 illustrates how the rules discussed above with respect to Step215 of the exemplary method and system are applied. This portion of theexemplary embodiment reviews plan contributions, determines compliancewith employer plan parameters, employee demographics, salaryinformation, and eligibility/enrollment information, directscontributions to appropriate accounts, and applies the pertinentInternal Revenue Code sections to the contributions to assure the planremains tax compliant and the overall plan retains the desired taxadvantages.

At Step 300, the process is initiated. At Step 305, it is determined foreach employee whether the employee is eligible to participate in theplan. If not, at Step 320 the system will progress to the next employeerecord and return to Step 305. If the employee is eligible, at Step 310the employee is notified of the plan's existence (if not already done atthe time of the plan's creation). If employee is not interested or hasexpressed a wish to not participate in the plan Step 320 is entered tomove to the next employee record. If the employee is interested, at Step315 confirm enrollment or enroll in the plan. At Step 330, apply datafrom the enrollment database, at Step 340 apply data from the planparameter database, and at Step 335, apply employee master record(demographic, personal, employment, payroll, employee-specific plandata) to the process of Step 325. At Step 325, allocation of employeecontributions for each of the existing sub-accounts, or to be createdsub-accounts, is performed using the predetermined formulas stated inthe plan. At Step 345, allocation of employer contributions for each ofthe existing sub-accounts, or to be created sub-accounts, is performedusing the predetermined formulas stated in the plan. These databases maybe maintained as one database or multiple databases depending upon theimplementation and does not effect the delivery of the methods (andsystem).

After making the initial calculation of employee and employercontributions (at Steps 325 and 345), at Step 350 test the aggregatecontributions against the “incidental benefits” limit, at Step 355 testthe Section 415 limits, and at Step 360 test the discrimination testlimits, to determine whether any reductions need be made to thecalculated employer and/or employee contributions. At Step 365, if thecontributions are limited by any of Steps 350, 355, and/or 360, the plandocument's predetermined formula specifically identifies the priorityand process by which the contributions are reduced to comply with thespecific limitation (there must not be any employer discretion in howthe limitations are met—otherwise the plan will fail to qualify under401). Based upon this formula, at Step 370, calculate the final employerand employee contributions to be made.

As an example of how the calculation and allocation of employer andemployee contributions would be made under the Navigator Plan™ considerthe following illustration:

Exemplary facts: Employee has worked for employer and participated inthe Navigator Plan™ for six (6) years. The employer does not offer adefined benefit pension plan. The Plan is a DPPSP offering employees theoption to contribute to a retirement sub-account (on a pretax basis) upto 6% of their base compensation with employer matching 50% of anyemployee contribution. For employees with more than five (5) yearsparticipation, the employer contributes $1000 to a health sub-accountset up specifically to pay current and future medical expenses(qualified under Section 105(b)). In addition, employees (with more thanfive (5) years participation) also have the right under the plan tocontribute (on an after-tax basis) up to an additional 10% of income toa health sub-account set up specifically to pay insurance premiums underpart B of title XVIII of the Social Security Act—Medicare. For 2002, theillustrated employee has aggregate compensation of $20,000 per year (not“highly compensated”) and contributes 6% towards for retirement incomeand an additional 3% to the health sub-account set up to pay part Bpremiums.

Initial Calculations for Current Year Contributions

Employee contributions—Retirement Income PretaxSub-account=$20,000×6%=$1200

Employee contributions—Health After-tax Sub-account=$20,000×3%=$600

Employer contributions—Retirement Income PretaxSub-account=$20,000×6%×50%=$600

Employer contributions—Health Pretax Sub-account=$1000

Apply “Incidental Benefits” Limit Test

-   -   Since the employee has participated in the plan for more than        five (5) years the 25% incidental benefits limit does not apply.

Apply Section 415 Limit Test

-   -   In 2002, the aggregate Section 415 limit for all contributions        are limited by the lesser of $40,000 or 100% of employee        compensation. For the example, Section 415 limits equal lesser        of $40,000 or $20,000×100%=$20,000. Given the aggregate        contributions made for the present employee are        $1200+$600+$600+$1000=$3400 and are less than $20,000, aggregate        contributions to the various sub-accounts are not limited by        Section 415.

Apply Discrimination Testing

-   -   Given the employee is not considered “highly compensated”        contributions on behalf of the given employee will not, in and        of themselves, make the plan discriminatory and will not be        limited.

FIG. 4 illustrates record keeping for the exemplary method and system ina non-retirement fund context (e.g., life, accident, or health fund)where investment income accrues to the fund without being subject tocurrent taxes and, if funds are used for tax-compliant purposes, notsubject to future taxes as well.

Systems exist today for creating and maintaining retirementsub-accounts. The present invention extends the methods (and systems)used in these systems to apply them to accident or health sub-accounts.Referring now to FIG. 4, at Step 400 the process is entered.

At Step 405, the prior period's accident or health sub-account units andbalance for the current employee is obtained from the Master RecordDatabase 410 at the appropriate employer/employee, pretax/post-tax,qualifying sub-account level. For each (employee/level), the followingcalculations are made: at Step 415, the current period's (pay period,monthly, semi-annual, annual, etc.) contributions are used to purchasecurrent period units (determined by dividing the applicableemployer/employee, pretax/post-tax level contribution by the currentperiod's net asset value) and increase the prior period's accident orhealth sub-account units (if an applicable sub-account does not existfor the prior period an initial balance of zero (0) is used for theprior period units); next, at Step 420, the current period's applicableAccident or Health Savings Account Repayment Request (note: eachestablished Accident or Health sub-account is established so that fundsare not commingled with other sub-accounts consistent with directivesestablished in the plan documents so that the applicable IRS Codesections are not violated—and maintaining the concept of separatecontracts) is converted into current period units (determined bydividing the applicable employer/employee, pretax/post-tax levelRepayment Request by the current period's net asset value) and decreasethe just calculated accident or health sub-account units (Step 425).Next, at Step 440 the current period net asset value is multiplied bythe current period calculated units to determine the current periodbalance for the employer/employee, pretax/post-tax sub-account presentlybeing manipulated. Next, at Step 445, the Accident or Health SavingsAccount Existence Indicator (described below) is used for the presentemployee to determine whether the present Accident or Health sub-accountshould remain in existence. If the Accident or Health Savings AccountExistence Indicator shows that the sub-account should remain, at Step455, the Master Record Database 475 is updated for the calculatedcurrent units, balances, paid check amounts/numbers/dates, and otherinformation manipulated by these methods. If the Accident or HealthSavings Account Existence Indicator shows that the sub-account should beeliminated and the sub-account is an employer sub-account, at Step 450the Employer Rebate Amount is increased by the applicable employer'ssub-account balance to reflect the elimination of the sub-account, andthe Master Record Database 475 is updated at Step 455 to store theapplied Employer Rebate and current units/balances are set equal to zero(0). On the other hand, if the Accident or Health Savings AccountExistence Indicator shows that the sub-account should be eliminated andthe sub-account is an employee sub-account, at Step 460 the EmployeeRebate Amount is increased by the applicable employee's sub-accountbalance to reflect the elimination of the sub-account, and the MasterRecord Database 475 is updated at Step 455 to store the applied EmployeeRebate and current units/balances are set equal to zero (0). Whenupdating, the Master Record will retain prior period activity to allowfor follow-up audit activity. Optionally, at Step 470, the employerrebate amount is applied to employer cash contributions. See FIG. 7A andthe accompanying explanation below.

When reducing the Accident or Health sub-account for Accident or HealthSavings Repayment Requests (see, Step 430) a check is preferably printedand sent, or a feed should be sent to the Disbursement System, forexample, to create such a check 435 to fulfill the Repayment Request (anExplanation of Benefits—EOB—should also be produced explaining thepurpose of the check, reasons for changes from the claimsubmission—reductions/rejections, and the effect on the respectivesub-account balance(s)).

After updating the Master Record for a specific employee, the EmployeeRebate Amount 750 (see, FIG. 7C,—measured at the pretax/post-tax levelfor every available Accident or Health sub-account) is later applied tocreate a check to be printed and sent or to create a feed to theDisbursement System to create such a check to fulfill the payment of theEmployee Rebate amount (see, FIG. 7C, Step 755) (an Explanation ofBenefits—EOB—should also be produced explaining the purpose of the checkand the effect on the respective sub-account balance(s)). For theEmployee Rebate Amount sent to the employee's beneficiaries or theemployee's estate, and any gains over contributions made by the employeeare taxed under Section 72. In addition, and as illustrated in FIG. 7B,at Step 735 a cash contribution in the amount(s) of any stated employeecontribution to a specified Accident or Health sub-account (calculatedas part of Step 725 from information based on Step 415) is sent to theinvestment administrator of the plan's sub-accounts for investment. Thiscash contribution is reflected as a payroll deduction on the employee'spayroll record 730 (see, FIG. 7B).

Referring now to FIG. 7A, after updating the Master Record for allemployees, the Employer Rebate Amount 705, obtained from Step 450(measured at the pretax/post-tax level for every available Accident orHealth sub-account) is applied at Step 710, based on the requiredemployer contributions provided at Step 700, to reduce aggregateemployer cash contributions (also measured at the same pretax/post-taxlevel for every available Accident or Health sub-account) to the trustfor the current period. At Step 715 the employer will send the resultingnet amount to the investment administrator of the plan's sub-accountsfor investment. The Master Record 475 (see, FIG. 4) accounting recordsnow show, based on Step 455, the reallocation of the Employer Rebatefrom terminated employer-contributed sub-accounts to the remainingemployee participants' employer-contributed sub-accounts (insuring notto commingle sub-account balances across employer/employee,pretax/post-tax, or Accident or Health Plan stated purposes).

The preceding illustration assumes that each sub-account is invested inonly one investment fund. The present invention does not limit theapplication to only one investment fund, but rather, one investment fundwas used purely as an illustration for ease of description. The presentinvention's exemplary methods (and System) may easily be extended toinclude multiple investment funds if the implementer desires to use amulti-faceted investment strategy. Under such an implementation, each“sub-account” term in the preceding paragraph are replaced with the term“sub-account fund” and sub-account additions or reductions are madeacross all “sub-account funds” following the directives provided by astated investment strategy. Such investment strategy to be establishedby some combination of employer and/or employee and stated within theplan documents along with the process to follow. In addition, the use ofunits and net asset values may be replaced with balances and applicablereturns (daily, period, etc.) if such implementation providessimplification for programming and application on the computer hardware.Such extensions do not limit the applicability of the proposedinvention.

FIG. 5A is a flowchart illustrating an exemplary accident or healthclaim payment method and system for handling reimbursement requests(claims and premium notices) and applying approved claims for paymentfrom applicable accident or health sub-accounts.

At Step 500 the process is started. At Step, 504, accident or healthsub-account claims are submitted in order to initiate a RepaymentRequest from the applicable accident or health sub-account. In order tomaintain compliance with applicable Sections of the U.S. Tax Code,claims must be submitted using a process and form consistent with thedocuments establishing the plan. At Step 516, the claim submission,reason for repayment request, and documentation supporting the claim,are matched against DPPSP plan parameters 508 established within theoriginating plan documents and Enrollment Data 510. If, the claim iswithin the plan parameter and claimant is enrolled, Step 524 is entered,otherwise Step 520 is entered (described below). For example, if theAccident or Health sub-account was established specifically for medicalcare (covering all or a portion of Section 213 qualifying expenses), theclaim documentation are compared with the plan documents to confirm thatthe claim meets the medical care definition established under the planand that the claim amount is not more than the qualifying expenses. Ifthe claim reason, documentation, and amount fall within DPPSP planparameters 508 (e.g., it is not necessary for the full balance of theaccident or health sub-account to be available for benefits in aparticular time period) and are within the balance of the applicableAccident or Health sub-account as determined at Step 524. At Step 528,the claim submission is reduced, if applicable, to the balance in theAccident or Health Savings Account based on information in Master RecordDatabase 512. At Step 532, the amount of the claim submission in excessof the balance in the Accident or Health Savings Account is determined,if necessary, and Step 520 (described below) is entered. At Step 540, anAccident or Health Savings Account Repayment Request is created and, atStep 544, instructs that the claim should be paid from the applicableAccident or Health sub-account. The present invention may optionally, atStep 536, use a Healthcare Reimbursement Arrangement (as defined underRev. Ruling 2002-41) if the plan sponsor so chooses. At Step 520, anyunapproved claim amount will be submitted, if applicable to be paidunder alternative claim repayment mechanisms (flexible spendingaccounts, insured plans, employer-sponsored uninsured plans, etc.).

FIG. 5B illustrates an alternative exemplary embodiment of the presentinvention relating to an accident or health claim payment method andsystem for handling reimbursement requests that incorporates multiplepayment mechanisms (such as, DPPSP Accident or Health sub-accounts,Health Reimbursement Arrangements, Flexible Spending Accounts, directpayment by beneficiaries, insured or non-insured plans—stop loss plans,for example). This exemplary embodiment demonstrates how the presentinvention is capable of incorporation into an existingemployer-sponsored accident or health insurance plan.

At Step 550, the process is entered. At Step 552, a claim against theAccident or Health Saving Account is submitted. At Step 560, adetermination is made based on Plan parameters 555 and Enrollment Data557 whether the claim is reimbursable under Plan parameters andenrollment data. If yes, Step 565 is entered. Otherwise, Step 562 isentered and the claim is rejected.

At Step 565, a determination is made whether the claim is reimbursableunder a Stop Loss Plan. If yes, Step 567 is entered. Otherwise Step 582is entered. At Step 567, a determination is made whether the Stop LossPlan is insured. If yes, Step 570 is entered and the claim is submittedto the Stop Loss insurer. Otherwise, Step 572 is entered and anindication is set for payment of the claim from the employer plan.

At Step 582, IRS rules are applied based on the Plan Parameters andinformation from the Enrollment Data 557 and Master Record Database 577to determine whether the claim is to be reimbursed from a HealthReimbursement Arrangement, Flexible Spending Account (FSA) or directlyby the employee. Based on this determination, either Step 585, 590, or592 is entered. At Step 585, based upon a determination at Step 582 thatthe claim is reimbursable from the Health Reimbursement Arrangement, theHealth Reimbursement Arrangement is reduced. At Step 587, a HealthSavings Account repayment request is generated. At Step 590, based upona determination at Step 582 that the claim is reimbursable from the FSA,a request for payment is sent to the FSA system. At Step 592, based upona determination at Step 582 that the claim is reimbursable directly fromthe employee, the beneficiary is notified to pay or the payroll systemis notified to pay. At Step 594, a determination is made to see if theAccident or Health Saving Account is eligible to pay. If not, Step 598is entered and the process is terminated. Otherwise, Step 596 is enteredand the Accident or Health Savings account is requested to make thepayment.

As part of this representative plan design, the stop loss contract (see,Step 565), whether insured or non-insured, could utilize a deductionthat is directly related to the balance in the accident or healthsub-accounts. This exemplary embodiment covers the methods (and system)for sending information to the stop loss provider identifying thebalance in the accident or health sub-account. It is important to notethat ordering rules for HRA/DPPSP accident or health sub-accounts andsalary reduction accounts (Section 125 flexible spending accounts) arefollowed (see, Step 582). As described earlier, where a health flexiblespending account (FSA) is offered in conjunction with a DPPSP accidentand health plan and the same medical care expenses are covered by both,amounts available under the DPPSP accident and health plan must beexhausted before reimbursements may be made from the Section 125 healthflexible spending account. A Section 125 health FSA, however, mayreimburse medical care expense that is not reimbursable under the DPPSPaccident and health plan. Additionally, the plan document for the DPPSPaccident and health plan may provide that coverage from the DPPSPaccident and health plan is available only after expenses exceed thedollar amount of the Section 125 FSA have been paid, then those medicalcare expenses may be reimbursed first from the Section 125 health FSAand then from the DPPSP accident and health plan when the amountavailable under the Section 125 FSA is exhausted.

FIG. 6 is a flowchart illustrating an exemplary determination method andsystem for assessing whether living covered individuals exist to supportthe existence of applicable accident or health benefit fund balances andto redirect existing accident or health fund balances when no livingcovered individuals exist to support said balances.

Referring now to FIG. 6, at Step 600 the process is entered. At Step605, a determination is made if the employee is still eligible andenrolled in the plan. If yes, then at Step 630 it is indicated that theAccident or Health sub-account should be continued. If not, Step 610 isentered. At Step 610, a determination is made if the employee's spouseis still eligible and enrolled in the plan. If yes, then at Step 630 isentered, otherwise Step 615 is entered. At Step 615, a determination ismade if the employee's dependant(s) is still eligible and enrolled inthe plan. If yes, then at Step 630 is entered, otherwise Step 620 isentered. At Step 620, a determination is made if any eligible claimsremain outstanding. If yes, then at Step 630 is entered, otherwise Step625 is entered. At Step 625, it is indicated that the Accident and/orHealth sub-account should be discontinued.

FIGS. 7A, 7B, and 7C depict the methods (and system) for contributionsto the Accident or Health sub-accounts. The various steps illustrated inthese figures were discussed above and are not repeated here.

FIG. 8 is a flowchart illustrating an exemplary method for paying claimsunder a retiree health program according to the present invention wherethe employer or union elects to contract with the Centers for Medicare &Medicaid Services to become a Health Care Prepayment Plan (HCPP) andadminister the Part B claims on behalf of their employees or members.

At Step 800, a Medicare eligible claim is submitted. At Step 805 theclaim is evaluated to determine whether the claim is covered by anemployer-sponsored accident or health benefits program. If the claim iscovered by an employer-sponsored plan Step 820 is entered and the claimis submitted to the accident or health plan and the claim is paid (seeSteps 500 or 550 of FIGS. 5A and 5B, respectively). Otherwise, Step 810is entered. At Step 810, the claim is evaluated to determine whethercoverage is provided under Medicare Part B. If covered under MedicarePart B, Step 825 is entered and the claim is paid by the employer (orthe employer's designate—TPA, insurance company, etc.), as an HCPP, onbehalf of Medicare. Otherwise, Step 815 is entered and the claim isrejected and an Explanation of Benefits (EOB) is sent to the claimant ifcoverage is not provided by either the employer-/union-sponsored plan orMedicare Part B. After paying the claim at Step 825, at Step 830accounting balances and documentation of claims and administrativeexpense are accumulated and the employer, such as an HCPP, may reimburseitself at Step 835 from Medicare-provided funds maintaining properaccounting records and documentation to support the claims payment andassociated reimbursement.

Thus, according to the present invention (methods and system) there is amore efficient method and system for providing employee benefits toactive and retired employees, their spouse, and dependents. Theexemplary methods permit both the employer and employee to accumulateand use funds on a tax advantaged basis through a DPPSP.

Although the invention has been described with reference to exemplaryembodiments, it is not limited thereto. Rather, the appended claimsshould be construed to include other variants and embodiments of theinvention, which may be made by those skilled in the art withoutdeparting from the true spirit and scope of the present invention.

What is claimed:
 1. A system for providing at least one employee with aDual-Purpose Profit Sharing benefit plan (DPPSP), comprising: means forestablishing the DPPSP as a qualified fund in accordance with InternalRevenue Service provisions; means for providing retirement benefits andat least one of accident and health benefits within the DPPSP; means forestablishing the DPPSP and at least one of a health sub-account and anaccident sub-account as an ERISA plan; means for determining at leastone of an allocation of employee contributions and an allocation ofemployer contributions to the DPPSP between the retirement benefits andthe at least one of accident and health benefits based on apredetermined formula; means for establishing that i) the employercontributions and ii) the at least one of accident and health benefitsare excluded from taxation as income, based on at least one federalincome tax exclusion rule; and means for offering the at least oneemployee the DPPSP.
 2. The system of claim 1, further comprising: meansfor receiving contributions to the DPPSP; means for receivingreimbursements to the DPPSP; means for establishing at least one of ahealth sub-account and an accident sub-account in accordance withInternal Revenue Service Code section 105; and means for processingdisbursements from the DPPSP based on the needs of the at least one ofthe health sub-account and the accident sub-account.
 3. The system ofclaim 1, further comprising: means for providing administration ofactivity for at least one participant with such dual purpose profitsharing plan; means for interacting with a payment mechanism that is asub-account of the dual purpose profit sharing plan; means forcalculating a contribution limit; means for reducing any current periodcontributions to the limit; means for calculating and adding any currentperiod contributions to, calculating and adding any current periodreimbursements to, and calculating and subtracting any current perioddisbursements from the sub-account of the dual purpose profit sharingplan.
 4. The system of claim 1, further comprising: means forcoordinating the dual purpose profit sharing plan with at least oneadditional payment mechanism associated with such at least oneparticipant and where such additional payment mechanism is not asub-account of the dual purpose profit sharing plan; means forinteracting with the at least one additional payment mechanism.
 5. Thesystem of claim 4, further comprising: means for determining at leastone plan parameter for each payment mechanism; means for sending thedetermined at least one plan parameter to the provider of suchmechanism.
 6. The system of claim 4, further comprising for at least onebenefit claim: means for determining for each payment mechanism whetherthe at least one claim should be paid; means for determining the amountfrom each payment mechanism to pay the at least one claim; means forsending the claim determination for the at least one claim to theprovider of such mechanism; means for sending the provider of thepayment mechanism the amount to pay the benefit claim.
 7. The system ofclaim 4, where the at least one additional payment mechanism is not foran employee benefit.
 8. The system of claim 7, where the at least oneadditional payment mechanism provides government reimbursement.
 9. Themethod according to claim 1, wherein the DPPSP health sub-accountsprovide long-term care benefits.
 10. A system for use by an employerhaving at least one employee to manage costs and improve financialperformance of an employer's employee benefit plans, the systemcomprising: means for offering the at least one employee a Dual-PurposeProfit Sharing Plan (DPPSP); means for establishing the DPPSP as aqualified fund in accordance with Internal Revenue Service provisions;means for receiving contributions to the DPPSP; means for receivingreimbursements to the DPPSP; means for establishing at least one of ahealth sub-account and an accident sub-account in accordance withInternal Revenue Service Code section 105; means for establishing theDPPSP and the at least one of the health and accident sub-accounts as anERISA plan; and means for processing disbursements from the DPPSP basedon the needs of the at least one of the health sub-account and theaccident sub-account.
 11. A medium communicated process where suchprocess implements a definite predetermined formula to allocate a valueof a life insurance contract owned by one or more parties to support apayment mechanism owned by each party where such definite predeterminedformula calculates: an amount to allocate to the profit-sharing accountof a plan participant and an amount to allocate to another party tosupport another purpose of the employer.
 12. The medium communicatedprocess according to claim 11, wherein the one or more parties is aninsurance company.
 13. The medium communicated process according toclaim 11, wherein the one or more parties is a State fund.
 14. Themedium communicated process according to claim 13, wherein the Statefund is for workers' compensation.
 15. The medium communicated processaccording to claim 11, wherein the one or more parties is a welfarefund.
 16. The medium communicated process according to claim 11, whereinthe one or more parties is an employer.
 17. The medium communicatedprocess according to claim 11, wherein the one or more parties is anassociation of employers.
 18. The medium communicated process accordingto claim 11, wherein the one or more parties is an association ofemployees.
 19. The medium communicated process according to claim 11,wherein the another employer purpose is tie to make payments for afederal program.
 20. The medium communicated process according to claim18, wherein the federal program is Medicare.